Appeals Court to Hear Whether EPA Followed Law Prior to Granting Exemptions

OMAHA — The 10th Circuit Court of Appeals in Denver will hear a Renewable Fuels Standard lawsuit challenging EPA’s issuance of small refinery waivers, after the court ruled on Friday it is the proper venue.

At the end of May, the Renewable Fuels Association, National Corn Growers Association, American Coalition for Ethanol and National Farmers Union, with support of Farmers Union Enterprises, sued EPA on three recent waivers granted, arguing the agency did not publish in the Federal Register what were final agency actions.

In the petition, the groups said they are challenging agency actions made “under unusually clandestine proceedings” to exempt refineries in Wynnewood, Oklahoma; Cheyenne, Wyoming; and Woods Cross, Utah.

On June 13, the 10th Circuit identified what it called a “jurisdictional defect” in the ag and ethanol groups’ petition for review.

Specifically, the owner of two of the refineries, HollyFrontier, argued in a court document the groups’ petition was defective because it did not include EPA copies of the waivers approved. However, the agency still has not made the applications public because it argues they include proprietary business information.

The EPA granted a total of 49 such waivers for 2016 and 2017 renewable volume obligations. The EPA said in its latest RFS volumes proposal that it waived a total of 2.25 billion gallons those years. New EPA Acting Administrator Andrew Wheeler has indicated the agency will continue to consider future waiver requests in the same manner.

The Wynnewood refinery is owned by a subsidiary of CVR Energy, and the Cheyenne and Woods Cross refineries are owned by HollyFrontier Corporation. CVR Energy is owned by energy billionaire Carl Icahn. For a time, Icahn served as an adviser to President Donald Trump and recommended the hiring of Scott Pruitt as EPA administrator. Icahn also sought RFS reforms when counseling the president.

Rather than challenge the agency’s authority to grant waivers, the groups said the three refineries named are examples of the agency’s “abuses” of the authority.

EPA has taken heat on how it defines “hardship” when it granted waivers. The ethanol industry and others have maintained the waivers were not designed for oil companies that report billions of dollars in profits.

The companies named in the lawsuit estimated in financial statements the waivers saved them $170 million in compliance costs.

Large companies such as Marathon Petroleum are taking their chances in filing for waivers, largely based on recent agency action to step up the number of waivers granted in the past two years.

The 10th Circuit recently ruled the EPA should have been granting exemptions all along. Congressional budget reporting language attached to appropriations bills during the past three years essentially opened wide the door to any refiner to receive an exemption. That language basically forbids EPA from considering a company’s financial returns when granting so-called hardship waivers.

The RFS only allows refiners that produce 75,000 barrels per day or less to qualify for waivers. Marathon’s smallest refinery produces about 93,000 barrels per day. Other large refiners have filed for waivers.

HollyFrontier and Sinclair Oil have been granted waivers this year. The retroactive waivers result in HF saving about $33.8 million in renewable identification numbers waived from the 2015 renewable volume obligations, according to the company’s quarterly financial report in May to the U.S. Securities Exchange Commission. Details were not available about Sinclair’s savings.

The Renewable Fuels Association and others filed a similar lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit.